Compared with surging base metal and oil prices, the appreciation of gold has been relatively muted. But mounting wealth in Asia, surging petro-dollar flows in the Middle East, and a supply-constrained gold market are all likely to push gold prices back up to US$1,000 per oz. by the end of the year, a new report from Citigroup Global Markets says.
Citigroup’s equity research team forecasts gold will “work higher through 2009-2010” and longer term “is capable of doubling or tripling from current levels.”
Gold averaged US$896 per oz. in the second quarter of this year, with a low of US$853 per oz. on May 1down from a high of US$945 per oz. on April 16.
Citigroup cites a number of reasons for its favorable view on the gold price. For one thing, fabrication demand will tighten in the Autumn, it says, and fabrication makes up 76%-82% of the physical gold market.
By contrast, net investment demand for gold has amounted to just US$11-US$14 billion in recent years.
Citigroup also maintains that negative real interest rates will continue to favor hard assets like gold. Systemic financial problems that have taken root in the U.S. and are now spreading to Europe and emerging markets will also support the gold price going forward.
Citigroup’s favorite gold stocks are: Barrick Gold (ABX-T, ABX-N), Peter Hambro (POG-L), Lihir Gold (LGG-T, LIHR-Q)and Newmont Mining (NMC-T, NEM-N).
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